The Market Perspective

Why the High Oil Prices?

Tuesday April 30 2013

The WSJ reports that the Permian Basin is pumping some 550,000 barrels of oil per day, up 38% from three years ago. This is creating   a rail boom in tiny Barnhart, Texas. 

The SPX notched right up to its previous high. Interestingly there is neither a shortage of stocks nor oil. so why are prices this high?  The answer has to be the social mood of seasonality. 

Stocks bottomed in November and have raced to their typical April tax time high six months later. 

Crude oil is racing out a large megaphone pattern on its weekly chart. This exhibits both lower highs and higher lows!  Given the collapse of copper and steel prices, something seems to be amiss here. Oil prices typically move up with stock prices and this has happened again. I am just wondering what the fundamentals are that support such high oil prices?  there is no shortage, driving is down, and we are producing more than ever. It seems a good time to be cautious on oil. that market is getting closer and closer to a resolution of this megaphone pattern. 

40 Years Later, 1973 = 2013

Monday April 29, 2013

We announced that the Great Recession of 2013-2015 had begun, just two weeks back. Every day that passes validates that outlook.

Economy

On the front page of the WSJ today, 

Hiding behind the profit gains of America's biggest companies is a worrying slowdown in sales growth.

U.S. companies ranging from International Business Machines Corp. IBM +0.33% toUnited Technologies Corp. UTX 0.00% to 3M Co. MMM -0.25% to Xerox Corp.XRX +0.12% have missed revenue forecasts, hurt by a combination of Europe's malaise, a stronger dollar and sluggish consumer spending.

On page A 17 Vanguard economists estimate policy uncertainty just since 2011 has cost $261 billion. 

ON page R 7 franchises attempt to stay open longer hours but just end up with more tired workers. 

Shilling - Not much oomph left in the economy

Politics

The Editorial page notes Congress is trying to exempt itself from Obamacare, possibly the biggest policy uncertainty and coming to all of us this October. 

With Obama re elected and Congress facing 2014, there is little reason for his own party to co operate. And so the sequester, the gun ban, the FAA fiasco have the President's own party looking out for their own interests, not his. This of course simply leads to more policy uncertainty. 

International

In the mid 1970s, the US effort in Viet Nam finally collapsed with fleeing refugees clinging to helicopters from the US Embassy Roof. ON the front page Washington cannot figure out what to do about Syria, on page A 17 John Bolton notes the lack of follow through by Washington on use of chemical weapons. Iran is of course watching. The parallel now and then is clear, policy uncertainty. 

Bottom line, markets detest uncertainty. 

Gold and Crude Oil

On the two hour chart, USO for oil and GLD for gold are tracking one another. At bottom MACD is getting close to turning over to the downside. A tug of war goes on here. The dollar is falling this morning but might well bottom as USO and GLD top short term. 

Here is a quote from Gold Rally May Lose its Steam on page C3

ETFs held about 73.41 million troy ounces of gold at the end of trading Friday, down about 5.2% from April 11, before the slide, and down 13% from the start of the year, according to data from RBC Capital Markets.

"You've had so much come out of the ETFs," said Frank McGhee, head precious-metals dealer with Integrated Brokerage Services. "Ultimately, somebody has to buy it. That's going to be sloshing around as an overhang in the physical" market, and that will also begin to weigh on futures prices, he said.

The number of open gold-futures contracts has also fallen. Speculative traders have also reduced their net bet on higher gold prices by 25% in the week since gold's record two-day plunge, according to the Commodity Futures Trading Commission.

"Everyone is questioning why they're holding that gold, and so they're just putting it on the market," said Anthony Lazzara, a principal of investment firm Lido Isle Advisors. He has bet that gold prices will fall further in coming months as more investors shed gold.

I am still watching the markets and have done nothing thus far. The big Picture story here is the parallel to 1973-74 when stocks fell 50%. 

Two Views - a new reader of TMP makes this observation

On a non log chart HUI may be headed for its long term support line. 

A log chart which shows a constant precentage change reveals a different picture. 

Here the uptrend line appears to have been broken, A close below that line at month end, tomorrow, would be a negative. Granted MACD in the lower panel has declined considerably but has not bottomed. 

Hmm that got me to thinking about the long term oil price.

$WTIC

Crude oil exhibits a series of lower highs since its top in 2011. Could it be subject to a new bear market just like gold?  I have not read a single article suggesting that might be the case, let's keep this on the radar screen. support lies at the 200 month moving average. 

A Heightened Level of Risk

Weekend April 27 2013

NOTE TO READERS

I have linked articles in the Wall Street Journal. I subscribe and the links work for me. However for non subscribers this is not necessarily the case. One reader complains of this. I would assume that if you are interersted in the markets you would subscribe to the WSJ. Would readers prefer I stop linking to the WSJ?

Economic Growth Stays Soft

Steelmakers Pinched by Price Plunge  Steel prices have slumped this month setting off a scramble among steelmakers to maintain prices, and market share despite a nationwide glut.

Too much steel, and that is the definition of Deflation. After QE 1,2,3 I am losing count, commodity prices are in trouble again. The only thing Bernanke stimulated was speculation in the stock and real estate markets. The unemployment numbers only move down as more people simply give up looking for work. 

 Overview

 Major stock indexes are likely in the process of topping here. Either money is going for bonds or stocks but not both. Oil had a good week. We are of the same mind as last weekend on gold, it still has a final fifth wave down before the real snap back rally begins. 

Socionomics

Bob Prechter has a good take regarding the way social mood establishes value.We have been warning that social mood would eventually turn negative. We have entered that time frame faster than most thought, consider some recent events. 

The Boston Marathon Bombing

The We'll Show You Attitude of the Federal Government intentionally delaying flights all over the country, the veto proof vote was 361 to 41 to stop such activity speaks to a Congress worried about re election versus a President totally free from that concern. 

The melt down in gold occurs as the physical desk in London shuts down. 

Jon Corzine is finally sued over IMF Global by the Bankruptcy Trustee.  It is truly amazing that he was allowed to lose investor funds,  which to this day have not all been traced. 

A Flash Crash occurs as Syrians hack the AP Twitter site. 

Apple loses 42% of its market value since last September. Rackspace doubles and then collapses. 

And all this is happening at SPX 1580!  As the markets fall to re test the 2008 levels, expect more of the same surprises. 

When duPont Glore Forgan was sold off piece meal to various offices in 1974, it became impossible to transfer security positions anywhere else. Lehman blew up one day in 2008. IMF Global lost investor funds all of which have yet to be accounted for. Our point is that you and your money are at serious risk. Your plane flight being on time is at risk. Your personal safety is at risk.  One reader of TMP reports closing all his brokerage accounts. Not a bad idea. At any rate vigilance is the order of the day. 

Social Mood -Direction of the Country

Notice the red line, wrong direction has begun to climb again. Here is the social mood on display that will eventually move the markets down. 

We will be discussing our new strategy in the section on gold. 

The Stock Market

 MYSE Advance Decline Volume

This indicator has now matched it highs from 2007, just before the big decline began. At top the price of the NYSE so far in 2013 has not matched the previous price high of 2007. That in itself is a divergence. But regaining such high ground and doing so in a last dash from the November lows should give investors pause to think about what happened next in 2007-2008.

Summation Index

The Summation Index offers another divergence. It is lower while the price of the NYSE is higher. So fewer and fewer stocks are moving the overall price index to the upside. 

NASD 100

The NASD 100 has registered a lower high than its top last year. The MACD trends down in the lower panel. No doubt Apple contributes to this. 

HDGE

HDGE looks to be bottoming. This is a fund that shorts individual stocks.  The 50 day MA is turning up, the pullbacks are encountering buyers at 17. 

All in all stock indexes look fully priced to us. We noted the divergences between price and our A/D Volume and Summation Internal Indicators. 

Bonds

Money is moving into bonds which is a defensive move. This comes as our indidators for stocks are topping out. Note the clear break out from the down trend channel. This is another puzzle piece suggesting stocks are topping. 

 Crude Oil

Crude Oil has not suffered as gold and silver have. it jumped this week and then pulled back with gold on Friday. Crude displays three lower highs and has been turned back at 98 on its last two attempts. At botom less money seems to be flowing into this sector. Will oil join gold in a move later to the upside?

Unleaded Gasoline

Gasoline has a series of higher lows but a lower high as well. The trend is up but puzzling. There is cerainly no shortage of crude oil, so why is the price so hgh?  Crude prices match stock prices and that is the answer.

The Dollar

The Dollar has been range bound for the last two years. A close over 84 would break this currency to the upside. 

Daily Gold

We feel fairly confident this is the right count. We have been looking for a fifth and final wave within the large three wave gold is in now. Notice the red bar recorded for volume tnis Friday. That should have ended the fourth wave move up.

GDX

The idea of a fourth wave is further re enforced by the incredibly weak bounce in miners like GDX. Notice it got hit hard Friday down 3.66% for the day. 

Copper Silver Daily

 Copper and Silver are tracing out the same patterns as gold.  Hecla HL dropped 5.83% on Friday alone. so the potential for huge drops in the fifth wave are certainly present. And by the way, the gold blogs are all claiming there is a huge physical demand for gold and silver. If that is true why is Central Fund still selling at a discount?

Here is an example of the sort of false optimism a fourth wave generates. This is from an article on Kitco. Notice there is no mention of the big price declines in the miners on Friday.

June gold finished with a gain for the week of $58, or 4.2%, to $1,453.60 an ounce on the Comex division of the New York Mercantile Exchange, helped by bargain hunting, particularly as the market took notice of the strong physical buying. The technical-chart posture also improved. In fact, the June contract has now risen in seven of the nine sessions since the historic sell-off of more than $200 an ounce earlier this month. May silver gained 79.8 cents for the week, or 3.5%, to settle at $23.758.

 

Big Picture Wave Count on gold

The count for Wave Three is shown in blue numbers. If this is correct we have one more move Down. 

That Wave 3 low  would be followed by a farily vigorous Wave 4 to the upside. A target for the fourth wave might be the 1525 break down area. I am guessing that would top this summer. I am wondering if oil will join gold duplicating a summer rally ala 2008 for oil. 

Then a final Fifth Wave would likey take gold down into the Fall.  

So what to do?  I suggest adding small purchases of  puts in the direction of the move. Given that it is late in the move down (four waves are complete), it is late to be getting overly aggressive now. 

June Put Options on GDX

The at the money 29s really jumped Friday but that is the point. One might start with a single purchase of these three, for $354 one has a claim on 300 shares of GDX worth $8,838. That certainly limits the risk!. The potential for GDX to fall below its previous low of 27.27 is pretty good. As the gold price drops the earnings potential for the miners will drop even further. Options on GLD are $408 for the June 140 puts. If GLD falls to 125 thought that is a 15 point drop at $100 a point. 

This is a  modest play in the direction of the move. We can plan our strategy for later moves based on how well this works out. Do not get aggressive at this point. Risk reward will be better betting on the larger Wave Four  move to the upside and then a Wave Five to the downside. 

AFter watching TVIX blow up I am extremely dubious about futures based double down ETFs like DZZ, it works until one day it does not work. It would certainly be handy if one could be assured it was not subject to all sorts of mechanical risks. Deutsche recently stopped issuing ETNS for DZZ. buyer beware!

THere will be many opportunities to initiate positions at the end of extreme moves the next two years. Be patient, we will be presented with many opportunities. 

hanks for reading The Market Perspective

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The Market Perspective bases its information on techniques and sources that have been found to be reliable in the past, and The Market Perspective tries to base opinions on sound judgment and research, however, we do not guarantee that future results will match past performance ands no guarantee can be made that advice will be profitable. The Market Perspective accepts no money for stock recommendations and is purely motivated by its own research in recommending any stocks.  Put another way, the responsibility for decisions made from information contained in this letter lies solely with the individuals making those decisions. The editor and persons affiliated with The Market Perspective may at times have positions in securities mentioned.  Nothing contained herein represents an offer to buy or sell securities. The Market Perspective encourages investors to be diversified, and to maintain sell stops and risk control over their valuable investment capital.  No guarantee can be made to the accuracy of text or charts.

Caution

Friday April 26 2013

Let me be clear. I have not given up completely on the idea that there may be one more wave down in gold. The rally from 1325 to 1460-70 was imporessive but could conceivably still be a fourth wave with a fifth and final to follow.

At the moment I am not long metal stocks or options.

Gold Stocks Finish a Short Term Bounce

Friday April 26 2013

Here is a good article comparing now and its recovery in 2008.. 

Acting Man  suggests another Elliott Wave interpretation. This is looking more correct, a big A B C correction from the 2011 top, 

or we simply did not get the small last fifth wave under the previous interpretation. 

The Economy - slower than expected.

Stocks continue their topping pattern. Crude oil is moving up nicely as it did mid 2008. I am thinking the asme for gold stocks, so over sold the rally is beginning this week. 

GLD

GDXJ GDX and GLD are all displaying this A B C pattern to the upside.  It is overdone on the two hour chart.  Now look at the daily.

GLD Daily

Gold has run enough that the idea of another big downside seems to be fading. THe MACD at bottom is encouraging. Here is my thinking. I have zero nada interest in owning tens of thousands of dollars of stocks in this sector. However we do seem to be at an historic oversold juncture, see the two lead articles. Even if gold  ends up much lower later this year, we seem poised for a bounce into June. 

Yesterday June $13 calls for GDXJ were trading at $84 per one hundred shares. So one could control 1,000 shares of GDXJ at the money for $840. While buying options is always risky, as we have seen owning gold shares is even more risky. 

I am suggesting it might be worthwhile to scale in purchases of June and September calls. I am not advocating a large purchase at once. But accumulating say 2-5 calls on pullbacks over the next few days could pay off this summer. USO has jumped from 31 to 33 and also looks promising. The idea here would be to own calls expiring in June and September. If one bought as the price rises accumulating  say 20 calls across gdxj, gdx.  The idea would be to keep cost under $3,000 total.  Then if GDX even moves back to 40, the returns would be impressive. Given the historic sentiment extreme, volume extreme, see chart above, and any other kind of esxtreme one can name this seems a reasonable risk. And again a far better idea than risking tens of thousands of dollars in actual stocks. The other advantage of this strategy, accumulating some calls, is that if the final low has still not occurred in gold, although that looks less likely, one does not have great risk exposure. 

My other observation about Steve Kaplan's buying lower and lower as a market falls is that clearly one should be hedged. If that is the strategy, one should own a six month at the money put at say 18 when gdxj is being purchased lower and lower under 18. This would have been a portfolio insurance technique as GDXJ slid to 11-12. 

CAUTION One should be thoroughly versed in options terminiology, strategy, technique, before entering any trade. 

Thursday Morning Markets

Thursday April 25 2013

The one thing I am sure of is that The Great Recession has Begun as we announced a few weekends back. Here are 12 more statistics courtesy of Dave Rosenberg which back up that idea. 

Here is an interesting comparison of why Apple is like Microsoft. I suspect this is the case. Both peaked and continue to make money but the growth era is behind them. 

I and others were expecting a fifth wave within a third wave for gold. But as of this morning that has simply not happened. Gold is priced at 1445, above Monday night's 1438. Gold bugs report massive physical demand around the world. Here is a typical article about buyers in Singapore.

With a nod to Steve Kaplan, here is detailed explanation of what happened in the gold meltdown. The one thing I got from this article is that if world banks want to knock gold down, they can. 

Weekly Gold

The bearish argument is that gold topped in 2011. Only a third of a third wave could be responsible for such a recent melt down. This suggests much lower prices ahead. Bears dismiss the physical buying as typical bear market psychology. Accustomed to buying pullbacks for the last twelve years, buyers rush in only to be disappointed. 

The bull argument is the usual talk of too much paper money in the world. This was a concerted effort to knock down gold and convince the public owning gold or anything to do with gold, like mining stocks, is a bad idea. So far that has been pretty convincing. On this chart MACD is pulling back to 2008 lows. Volume was at an all time high on the sell off. For the first time since the bull market in gold began in 2000, the 200 week MA was breached. That can be a bull or bear argument.The month of April comes to a close next Tuesday. It will be interesting to see if gold can close over 1525. 

Daily Gold

I have been thinking this move up was a fourth wave within a large third wave. That would suggest a final lower price back to the 1300 area. However, as many are pointing out, the 1450 area appears to be a break out level. 

Central Fund closed at a  -.2 % discount yesterday. 

Apparently the bottom line is that the argument for a rally in gold near term is gaining legs. 

Crude Oil Daily

Now look at the big move in crude oil yesterday. It certainly did what it needed to do. On the other hand, crude oil has failed twice at 98. Is this just a bounce off the lower side of a down trend channel?

No one knows, we will report as we gain information. 

Flash Crash a Reality; Whoops at Apple

Wednesday April 24 2013

Our title for last weekend's post was 

Flash Crash Potential Increases

Yesterday it happened. Syrian hackers broke into the AP Tweet Account and sent a false report. The report was about a White House Bombing. As you can see at right the markets dropped and rebounded. One wonders just how much computers drove this or humans. Again, a reason to be concerned about market involvement.  At any rate, a spot on correct asssessment from TMP.

Jesse comments on the Flash Crash.

 

The after hours jubliation at Apple was short lived.  An article in the WSJ today suggests Samsung is surging on the tech front, we noted the eight page Samsung ad yesterday in the WSJ.

this is playing out as Ramki expected. Notice the large $20 trading range the first few minutes of today's trading, orders all over the place being executed, this is typical of what happens after a news event. By day's end we may have all the orders out of the way and then see some clarity. 

Apple Up 5%, Gold Silver Sag

Tuesday April 23, 2013

Appple is trading up 5% in late trading Tuesday, plans to re purchase its stock.

The longer the gold complex sags which it did as well as silver today, the greater the chance the short term carnage is not over yet. The miners look awful and little has improved. The chance that this is a fourth wave which will become a fnal fifth to the downside probably heightens the longer no real improvement occurs.

There Are no Markets Just Central Bank Intervention

Tuesday April 23 2013

If the FED has no compunction about intervening in the bond market, is there anything to stop them from supporing Apple or CAT, someone is doing just that this morning. 

Waiting on Apple

Tuesday April 23 2013

Again we refer you to the recent articles on Caterpillar.  With lower earnings and   lower stock price the best idea CAT has is to buy back its own stock. Companies cannot report gains on their own stock transactions. Calling this a reward to stock holders, who afer all bought the stock in anticipation of higher prices seems a bit bizarre. 

Samsung took out eight full page ads in the WSJ today, the day Apple earnings are due after the close of trading. I believe I count a third wave about done in Apple which suggest some sideways action on the earnings announcement but I am not making any bets. 

Gold is as beat up as Apple, and there are numerous articles that physical demand for gold is strong. 

GLD

The chart of paper gold GLD continues to look like a fourth wave. Other metals plays are experiencing a weak bounce as well. it may be a long shot to bet on further weakness here but we still don't see any strength. Note the lack of volume. I am still thinking this is forecasting deflation ahead. 

Copper remains weak and oil bounced in a fourth wave on its daily chart. 

US Dollar

The three moving averages converged and now the dollar appears to be moving higher. It appears the red 13 day MA could move above the green 34 day in the near future. That would lead to weaker commodity prices. The weak commodity rebounds are happening while the Dollar consolidates. Note the third higher level of the MACD and it is curling up. The Dollar is key to what is happening. 

NASD Summation Index

The internals of the NASD market continue to deteriorate. As I noted how long can the NASD 100 stay up with this happening?

We will report after the Apple Earnings come out.